Month: February 2020

Student Loans: Cancellation of Debt Relief

Taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school now qualify for safe harbor with regard to cancellation of debt income for discharged student loans. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

Background

Previously, the Treasury Department and the IRS provided relief for federal loans discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders. However, this relief is now extended to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc.

What this means for taxpayers

Under the safe harbor, taxpayers should not report the amount of the discharged loan in gross income on his or her federal income tax return. Additionally, the IRS will not require that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

Questions? Don’t hesitate to call.

• By Leon Clinton
• February 21, 2020

Six Facts About Form 1040-SR

Taxpayers aged 65 or older now have the option to use Form 1040-SR, U.S. Tax Return for Seniors, thanks to the Bipartisan Budget Act of 2018, which required the IRS to create a tax form for seniors. Here are six facts you should know:

1. Form 1040-SR is designed with larger font size (i.e., “large print”) to make it easier to read, as well as a standard deduction chart, both of which make it easier for older Americans to read and use. Taxpayers who electronically file Form 1040-SR may notice the change when they print their return.

2. Both the 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. Many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.

3. Taxpayers born before January 2, 1955, have the option to file Form 1040-SR whether they are working, not working or retired. The form allows income reporting from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

4. Seniors can use Form 1040-SR to file their 2019 federal income tax return, which is due April 15, 2020. All lines and checkboxes on Form 1040-SR mirror the Form 1040 and both forms use all the same attached schedules and forms. The revised 2019 Instructions cover both Forms 1040 and 1040-SR.

5. Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Taxpayers who itemize deductions can file Form 1040-SR and attach Schedule A, Itemized Deductions, when filing a paper return. For those taking the standard deduction, Form 1040-SR includes a chart listing the standard deduction amounts, making it easier to calculate. It also ensures seniors are aware of the increased standard deduction for taxpayers age 65 and older.

6. Married people filing a joint return can use the Form 1040-SR regardless of whether one or both spouses are age 65 or older or retired.

If you have any questions about Form 1040-SR, please call.

• By Leon Clinton
• February 19, 2020

Do You Need to File a 2019 Tax Return?

Most people file a tax return because they have to, but even if you don’t, there are times when you should – because you might be eligible for a tax refund and not know it. The tax tips below should help you determine whether you’re one of them.

General Filing Rules

Whether you need to file a tax return this year depends on several factors. In most cases, the amount of your income, your filing status, and your age determine whether you must file a tax return. For example, if you’re single and 24 years old you must file if your income, was at least $12,200 ($24,400 if you are married filing a joint return). If you are age 65 or older, income thresholds are higher ($13,850 in 2019 for single filers). If you’re self-employed or if you’re a dependent of another person, other tax rules may apply (see below).

Tax Withheld or Paid

Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year, and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund, but you have to file a tax return to receive the refund.

Eligibility for Certain Tax Credits

1. Premium Tax Credit. If you, your spouse , or a dependent was enrolled in healthcare coverage purchased from the Marketplace in 2019 you might be eligible for the Premium Tax Credit if you chose to have advance payments of the premium tax credit sent directly to your insurer during the year; however, you must file a federal tax return and reconcile any advance payments with the allowable premium tax credit.

2. Earned Income Tax Credit. Did you work and earn less than $55,952 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,557. If you qualify, file a tax return to claim it.

3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit and receive a refund even if you do not owe any tax.

4. American Opportunity Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don’t owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.

5. Health Coverage Tax Credit. If you, your spouse, or a dependent received advance payments of the health coverage tax credit, you will need to file a 2019 tax return. Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments, shows the amount of the advance payments.

Other Situations

You must file a return in other situations as well, including, but not limited to the following situations:

• You owe special taxes such as the alternative minimum tax (AMT), additional tax on qualified plans such as an individual retirement arrangement (IRA), or another tax-favored account, or household employment taxes. However, if you are filing a return only because you owe these taxes, you can file Schedule H, Household Employment Taxes, by itself.
• You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
• You had net earnings from self-employment of at least $400.
• You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

If you have any questions about whether you should file a return, please contact the office.

• By Leon Clinton
• February 16, 2020